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Are you aware of the IHT Reduced Rate of 36%?

Are you aware of the IHT Reduced Rate of 36%?

Top Tip for Studying for Your CII ExamsIn this article we look at the IHT reduced rate of 36% which may come up if you are sitting the R03 exam and of course the AF1 exam.

It is possible to pay a reduced rate of IHT of 36% where at least 10% of someone’s net estate is left to charity. The 10% is calculated after deducting IHT exemptions, nil rate band and any reliefs e.g. business relief.

Here’s a question from our R03 calculation workbook showing how it works in practice:

Mr Grant died on 23rd March 2022, leaving £10,000 to his favourite charity, £180,000 to his wife and £350,000 of cash to be split equally between his son and daughter. He had made no gifts during his lifetime.  What is the IHT liability on Mr Grant’s estate?

Answer                                                    £

Total estate                                          540,000
Nil rate band                                       -325,000
Spouse exemption                            -180,000

The balance is £35,000.

10% of £35,000 is £3,500.

As the charitable gift is £10,000 this is over the 10% so Mr Grant will be liable to 36% rather than 40%.

Take the gift of £10,000 from £35,000 and the balance of £25,000 is taxable at 36% = £9,000

If you would like to practice more R03 calculations our workbook is available via our website: